Stamp duty change shows government is asking the right housing questions

Over the last couple of decades, it has been a regular feature for the Budget statement to include some headline-grabbing giveaway at the conclusion.

The Autumn Budget was no different, with chancellor Philip Hammond announcing that stamp duty will be removed for first-time buyers on purchases of up to £300,000, while for purchases of up to £500,000, no tax will be paid on the first £300,000 of the transaction price.

Stamp duty reform is something that most of the industry is united in wanting, even if the exact model of that reform – from moving it to a tax paid by sellers rather than buyers to scrapping it altogether and replacing it with a drastically reshaped council tax – varies sharply depending on who you are talking to.

Yet barely had the chancellor left the House of Commons before the latest round of handwringing and chiding began. Concerns were immediately raised by some from within the industry that first-time buyers wouldn’t really benefit from the change.

Instead, critics warned that the money saved from the removed – or reduced – stamp duty bill would simply mean that vendors would raise their asking prices.

Far from making life easier for first-time buyers – and therefore giving the housing market a badly needed jolt – the stamp duty change would make precious little difference to the outlay of a first-time buyer: rather than the government getting the money spent on stamp duty, an equivalent amount would instead end up in the vendor’s hands.

Is this really true, though? Personally, I’m not so sure. A tax change like this doesn’t actually alter the value of a property in any material way; if it was worth £300,000 last week, it’s not suddenly worth £305,000. A vendor may ask for more money, but that doesn’t mean that is what it is actually worth, nor does it mean that any buyer will pay that higher price.

After all, buyers approach purchasing a property with a price ceiling in place. That ceiling will not really change just because first-time buyers no longer have to pay stamp duty.

In fact, according to the Institute of Fiscal Studies, even if the change does lead to house prices rising, it will be by such a small amount that home ownership is still made more attainable due to the money saved from paying stamp duty in the first place.

If there is any disappointment around the stamp duty reform, it should be that it is limited only to first-time buyers; stamp duty is certainly not solely an issue for those entering home ownership for the first time. A study by the Building Societies Association this year found that just 6% of first-time buyers described stamp duty as a barrier to buying property, compared with 38% of homeowners. 

If adding some momentum to the housing market is the aim – and it should be – then we need movement further up the chain, not just focusing relentlessly on the difficulties of those buying for the first time. As it stands, stamp duty remains a disincentive for older homeowners considering downsizing, which simply reduces the amount of suitable available stock for those second- and third-time purchasers and clogs up the entire market.

The stamp duty change announced by the chancellor is far from perfect. In all honesty the whole issue of stamp duty needs to be revisited from the ground up; wholesale reform will be more effective at ensuring it does not serve as a barrier to housing transactions, rather than the odd tweak here and there.

But some of the criticism levelled at the government over it strikes me as premature and speculative.

Far more important is the fact that we have again been given a clear message that this government is well aware of the issues faced by the housing market and wants to take material action to tackle them. It may not have the right answers just yet, but the fact that it seems to be asking the right questions is a welcome change. After so many false dawns and the revolving door of the housing minister job, this is a big cause for optimism.

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